25 Canada Square Chambers

The intermediate track was introduced to assist with the general streamlining of the civil courts. Whether they have achieved this remains an open question. It is largely too early to tell, after all even today only 2% of cases receive an allocation to the intermediate track[1]. In practice, what the intermediate track has done is caused a headache for legal representatives with a new, complex and seemingly highly restrictive, costs regime. Intermediate track matters can address intricate and challenging matters, meaning the danger that a successful party recovers only a fraction of their actual costs is now acute. This was brought clearly into my mind recently when following a successful trial, a Claimant brought a schedule of costs which far outstripped their fairly modest litigation. Having seemingly forgotten that the fixed costs applied, they proceeded to argue a wholly wrong interpretation of the scheme and ultimately were left with an incurred/recovered costs deficit, which far outstripped their claim. Too many advocates think of costs as an afterthought, but, in fixed cost litigation they are too important to ignore. This can catch even senior counsel out, particularly as complex litigation normally heads off for detailed assessment. Routinely though this is being simply assessed at trial under the perhaps misguided principle that there is a simple fixed system making such matters uncontentious. The principle of fixed costs is of course meant to provide clarity, but in reality, the rules are full of traps and the hard work to win a claim can be undone by simple mistakes at assessment. From forgetting VAT to misunderstanding the new Part 36 consequences, the reality is any counsel appearing on these cases must be well equipped to ensure mistakes are avoided. The below are just a few examples encountered where advocates, solicitors and the Court have seemingly struggled to grapple the new regime, always to the detriment of a paying party. The difficulty of escaping the regime The first common mistake is believing that the fixed costs don’t apply at all. While some of this is transitional as parties get up to speed, even now nearly two years after allocations began, parties are still attending trial with standard costs schedules. These are not just a waste of costs themselves, but they are a clear give away that a party may be unprepared to argue the fixed costs regime. The Court has no routine power to depart from fixed costs. Traditionally a successfully utilised Part 36 offer or arguments of conduct, have provided escape hatches from fixed costs schemes, but these are now closed off. There appears to be no broad discretion for a Court to depart from the fixed costs and any party embarking on intermediate track litigation should be clear as to that or be very well armed to argue otherwise. Finally, it doesn’t matter whether the claim has been allocated or not. CPR 45.50 makes clear that any case which would “normally be allocated” to the intermediate track incurs fixed costs. Therefore, while it may still be appropriate to make a pre-allocation application to strike out, this is not a means of escaping the fixed costs regime. Fundamentally, if your claim was issued after 1st October 2023 you are stuck with the regime. So, the question becomes how best to ensure your client places themselves in the best recovery position possible. Getting the band right An intermediate track allocation alone is not the end of the matter, as the new complexity band system is arguably even more important. The ultimate costs recovery between a band 1 and band 4 claim is comfortably five figures and it can be fatal to a party’s prospects to receive too low a banding. The complexity bands themselves provide very little guidance on allocation beyond dividing the bands by value. This is very different to the fast track where claim types are referenced. This leaves the court only with the fall back of an approximation based on the claim’s value. However, this should be studied carefully. A simple debt claim may justify a complexity band 1 point despite its £80,000 value, while a complex international contract dispute may justify a higher band despite a trivial sum in issue. Critically a party must ensure they are ready to push for the appropriate band particularly if limited costs recovery would fatally undermine their prospects. Of course, allocation cuts both ways and increasing your own potential recovery means raising your liability. This can lead parties, particularly those with deep pockets where actual cost recovery is not essential, to push for lower banding. The importance of getting this question right can therefore be pivotal. There is a surprisingly low number of appeals being taken on this point, but contested hearings regarding allocation are undoubtedly increasing as parties grapple with the consequences of a low banding. The allocation stage should be approached with the same solemnity as any element of the claim, because it can ultimately prove just as critical. Unreasonable conduct The “unreasonable conduct” principle has been brought into the intermediate track seemingly mirroring the provisions of the small claims track (CPR 27.14(2)(g). However, there is a crucial difference. While under the small claims track system costs return to an at large process here, CPR 45.17 permits the fixed costs can only be varied by 50% where such conduct is found. The key question is what constitutes “unreasonable conduct”. The ‘permits no reasonable explanation’ test, as espoused in Dammermann v Lanyon Bowdler LLP[2], and appears in the commentary to the small claims rule, now appears explicitly within the rule itself. However, this has remained subject to very limited judicial discussion and remains a ‘you know it when you see it’ approach, which can lead to extraordinarily inconsistent applications. As an example, one such quirk is whether the rule requires a party accused of poor conduct to produce a reason, or whether it is enough for the Court to hypothesise a reason. The former seems to be a more workable standard, but the wording of the test implies the latter. Having seen both approaches applied, it is safe to say there is very little consistency on these questions. If this is an argument that you wish to run, then make sure you are well armed with evidence. Even seemingly obvious acts of poor conduct such as failing to attend hearings or material disclosure failures can fail to persuade a court that this high standard is met. This exercise should be approached carefully, recognising that success on this point can mean many thousands of pounds in further recovery. Further, a successful party faced with a charge of unreasonable conduct should be alive to the possibility of seeing their hard work undone by a restriction of their costs. An odd coda to this section, is that the 50% penalty is fixed rather than a cap. The party having their costs altered will only see them altered by 50% and no other sum (although this does not affect disbursements). This means that the advocate merely has to prove that unreasonable conduct has occurred, not what costs it caused specifically as small claims judges sometimes require. That being said in practice the court is likely to want to understand what practical impact the unreasonable conduct had. Taking advantage of allowances While the fixed costs can be particularly tight in some regards, they do provide mechanisms for some further recovery, if costs can be shown to be justified for a particular purpose. These must be considered carefully to ensure that a party is in the best possible position, and to ensure that critical support is not lost out of a fear of the regime. Take the example of a statement of case. If this is drafted in house by a party’s solicitor it receives no additional recovery, although presumably represents a significant actual cost to the paying client. However, if it is prepared by a “specialist legal representative” which is widely interpreted as meaning appropriate counsel, a sum of over £2,000 becomes recoverable. This is just one example in the regime where taking advice of one form or another is separately recoverable. This in theory is subject to the court determining that the same is reasonable but there is a limit to how much scrutiny the Court can place upon this. Advice is of course privileged, and it would be a very high bar for a paying party to successfully argue such advice should be disapplied for any reason other than proportionality. Proportionality has of course been the reason historically that such advice is not sought, as the higher costs to a client may have been hard to justify. However, now faced with a situation where these costs may ultimately only be recoverable if specialist advice is taken, parties should not be afraid to take advantage of these options. There is also an uplift permissible where costs have been incurred because a party is vulnerable. This can be interpreted widely as I saw a successful application of this section where a client had essentially developed paranoia about the proceedings and required significantly more contact with their solicitors than would ordinarily be justified. The Court was sympathetic here and awarded a significant uplift to their costs. Some pitfalls persist in this provision. Firstly, there is a de minimis threshold to clear of 20%, i.e. you must have spent more than 20% than the fixed costs because of the vulnerability. Likewise, that spending must be because of the vulnerability. It is not sufficient to simply say that a vulnerability is present, and therefore costs are higher. While this would require careful documentation, it is a clear way in which parties should not be afraid to push for a departure from the ordinary rules where their circumstances justify it. The Court is understandably sympathetic to litigants who are vulnerable, and a firm should not be wary of the additional cost this can produce given this allowance. Exceptional circumstances So far, the view here has been fairly straightforward that fixed costs are the reality. However, there is a slight discretion retained by the Court which is to uplift costs in exceptional circumstances. CPR45.9 provides a provision for providing a standard basis assessment of costs where there are exceptional circumstances. This is likely to become an increasingly litigated point as it seems to provide the clearest route for recovery above and beyond. Unsurprisingly there is no guidance at all as to what might constitute exceptional circumstances. While there is no guidance a few points can be gleamed as to when this might be appropriate. Conduct which is otherwise covered by the rules is very unlikely to be sufficient. This means litigation conduct or a parties’ vulnerabilities are almost certainly not going to be enough to permit an uplift. Likewise, the complexity of the litigation would likely not justify the uplift given that this would speak to an incorrect banding or allocation rather than something intrinsic to the litigation. Conclusion These are just a few areas in which the fixed costs can cause challenges at trial. The importance of ensuring that a party is well armed to respond to any issues thrown up by the regime is critical to ensure that a successful party does not reduce a great outcome to a pyrrhic victory, because of a last-minute mistake on costs.   Author: Sam White, Barrister     [1] MoJ Quarterly Justice Statistics April to June 2025 (Civil Justice Statistics Quarterly: April to June 2025 - GOV.UK) [2] [2017] EWCA Civ 269

Introduction On 1 August 2025, the UK Supreme Court handed down its judgment in Johnson v FirstRand Bank Ltd (t/a MotoNovo Finance), along with the linked appeals in Wrench v FirstRand Bank Ltd and Hopcraft v Close Brothers Ltd. These cases addressed significant legal questions about the nature of commission agreements between financial lenders and motor finance brokers, particularly in circumstances where such commissions were undisclosed or were discretionary commission arrangements (DCAs). DCAs involved brokers being incentivised by the prospect of higher commission to secure lending to the customer at a higher interest rate. The Court was not specifically considering those arrangements within this appeal. The UK Supreme Court was asked to determine whether the non-disclosure or partial disclosure of the commission arrangements gave rise to fiduciary duties, or (in the case of Johnson) to an unfair relationship under s140A of the Consumer Credit Act 1974 (CCA 1974), or otherwise gave consumers grounds for redress. While the decision has narrowed the scope of legal liability for lenders, it also reinforces the importance of transparency within these commission-based agreements, and places pressure on the Financial Conduct Authority (FCA) to deliver an industry-appropriate redress scheme. Facts Each of the three appeals concerned individuals who had entered into motor finance agreements for second-hand vehicles, arranged by dealerships acting as credit brokers. In each case, the claimants were presented with one finance offer by the car dealerships, which they accepted. The lender in Mr. Johnson’s and Mr. Wrench’s cases was FirstRand Bank Ltd (t/a MotoNovo Finance), and in Ms. Hopcraft’s case, the lender was Close Brothers Limited. The central issues in all these cases were the commissions paid by the lenders to the brokers, and whether the failure to disclose the nature or amount of those commissions gave rise to legal consequences. It is important to note that, at that time it was common for car dealers acting as brokers, to benefit from discretionary commission arrangements (DCAs), which incentivised them to increase the interest rate in return for higher commissions. This practice was subsequently banned by the FCA in January 2021. Each claimant brought proceedings in the County Court against their respective lenders, alleging that the brokers had breached fiduciary and/ or so-called “disinterested” or “Wood/Novoship” duties, and that the inadequate disclosure of commission rendered the credit relationships unfair under section 140A CCA 1974 (s140A). The arguments drew on authorities such as Wood v Commercial First Business Ltd [2019] EWCA Civ 471 and Novoship (UK) Ltd v Mikhaylyuk [2014] EWCA Civ 908, which considered the duties of fiduciaries, as well as the (ostensibly discrete) duty to provide advice, information or recommendation on a disinterested, impartial basis (a “disinterested duty”). In Mr. Johnson’s case specifically, the broker received a substantial discretionary commission that amounted to approximately 55% of the total interest paid by the consumer. The only reference to this arrangement was a general statement within the paperwork he received, that a commission “may be paid”. The disclosure did not provide any detail regarding the amount, nature, or structure of the commission. The claimants argued that the lenders were liable in each of their cases, either because the brokers owed them fiduciary duties that had been breached, or because the failure to disclose the commissions resulted in an unfair relationship under s140A CCA 1974. The lenders contended that the dealers owed no duty of loyalty to the consumers sufficient to give rise to fiduciary obligations, as they were pursuing their own commercial interests in selling vehicles rather than acting solely in the consumers’ interests. Procedural history Mr. Wrench succeeded at first instance in the County Court, but lost on appeal, Mr. Johnson was successful at both levels, and Ms. Hopcraft’s claim was initially dismissed but later upheld by the Court of Appeal. In October 2024, the Court of Appeal allowed all three appeals in a joint decision, holding that brokers may owe fiduciary duties, or at least a duty to provide disinterested advice, where they hold a position of trust. This suggested that a failure to disclose commission payments could trigger equitable remedies, such as breach of trust or bribery. The Court of Appeal also held that the commission arrangements in the cases of Mr. Johnson and Ms. Hopcraft contributed to the unfair relationship between the consumer and the creditor. Given the wide-ranging implications of this decision for the financial services industry, and the risk of extensive historic liability, the Supreme Court granted permission to appeal. The FCA intervened to assist the Court, expressing concern over the Court of Appeal’s approach and emphasising the regulatory significance of the issues raised. The Decision Made The Legal Test for Fiduciary duties The UK Supreme Court delivered a detailed judgment, partially reversing and considerably narrowing the decision of the Court of Appeal. The Court clarified that such arrangements do not automatically impose fiduciary or “disinterested” duties, and that claims in equity or tort (including bribery) cannot succeed unless specific factual thresholds are met. The Court held that the existence of fiduciary duties depends on an objective assessment of whether a party has consciously assumed responsibility to act loyally for another, exclusive of any self-interest. Mere receipt of commission does not generate such duties. The car dealers in these appeals operated as a “separate player in the negotiation from start to finish, free to pursue its own interests at arm’s length from the interests of the customer” ([280]). They were not considered to have assumed any undertaking of single-minded loyalty to the consumer, with the Court considering a more ‘common-sense’ approach at [277] that, “No reasonable onlooker would think that, by offering to find a suitable finance package to enable the customer to obtain the car, the dealer was thereby giving up, rather than continuing to pursue, its own commercial objective of securing a profitable sale of the car”. The Court confirmed in their judgment at [273] that “[…] dependency or vulnerability are not, […] indicia of a fiduciary relationship, in the absence of an undertaking of loyalty”. Therefore, the mere fact that the dealers were involved in some aspect of the decision making process of the consumer, did not give rise to a fiduciary relationship or an obligation upon them to act altruistically. While recognising the common law tort of bribery as being established and distinct from equitable causes of action, the Court held that liability under that tort depends on the recipient being a fiduciary (at [73]). This meant the Court of Appeal was wrong to have held differently. As no fiduciary duty arose, the consumers could not succeed under the tort of bribery or in equity for dishonest assistance. It was also emphasised that accessory liability requires insufficient disclosure that fails to secure fully informed consent. The Application of s140A CCA 1974 The Court treated s140A of the CCA 1974 as a distinct, fact-sensitive basis for redress. Lord Reed explained that unfairness can flow from numerous elements of the credit relationship, with the Court identifying in their judgment at [319], a non-exhaustive list of factors to consider, namely, “the size of the commission relative to the charge for credit; the nature of the commission (because, for example, a discretionary commission may create incentives to charge a higher interest rate); the characteristics of the consumer; the extent and manner of the disclosure (including by the broker insofar as section 56 is engaged); and compliance with the regulatory rules”. The Court highlighted that the absence or partial disclosure of a commission is relevant but not determinative of whether the relationship is fundamentally unfair. Comparison with Plevin and the Outcome in Each Case In applying these factors, the UK Supreme Court found that the relationship in Johnson was unfair. The commission was substantial, at approximately 55% of the total interest and nearly a quarter of the car’s purchase price, and the dealer had discretion in setting the rate. Disclosure in Johnson was vague and the commercial tie – wherein the lender had first refusal of customers who were referred to them, instead of there being a panel of multiple lenders - was concealed. In coming to this conclusion, the Court acknowledged the similarities raised on appeal by the Respondents, to the analogous case of Plevin v Paragon Personal Finance Ltd [2014] UKSC 61 (Plevin), noting that the size of the commission in Johnson equated to the position in Plevin, where the commission was 71.8% of the cost of the PPI policy premiums and the relationship therefore, found to be unfair. However, whilst the Court rejected this analogy, identifying that the two cases, “concerned different products on different markets” (at [326]), they maintained that the undisclosed commission being so high was a “powerful indication that the relationship […] was unfair”. As such, the Court ordered that Mr. Johnson should recover the full commission paid, with interest from the agreement date (29 July 2017), at an appropriate commercial rate. By contrast, in Wrench, the commission was fixed, not discretionary, the documentation sufficiently referred to the existence of commission and the interest rate aligned with normal market offers. As a result, no unfair relationship or fiduciary duty was found. Similarly, in Hopcraft, although the commission was secret and discretionary, the Court concluded there was no evidence that the consumer had relied on the broker, nor that the rate was inappropriately inflated. Accordingly, the appeals in Wrench and Hopcraft were dismissed. The UK Supreme Court decisively rejected the Court of Appeal’s broad proposition that the non-disclosure of commission automatically leads to a conclusion of fiduciary breach or unfairness. Instead, the Court held that each case must turn on a careful, contextual assessment, which is a “highly fact-sensitive exercise” (at [297]). Merely being unaware of commission is insufficient. To establish liability, there must be a potential combination of factors such as substantial commission, broker discretion, and weak or misleading disclosure, such that the factors undermined the fairness of the credit relationship. The FCA’s comments In response to the judgment, the FCA published various statements between 1 and 3 August 2025. The regulator welcomed the clarity provided by the Court, noting that it was “[…] grateful to the Court for delivering the judgment after the market closed”, providing space for the regulator to form a response in the wake of such a decision. In addressing the need to consider a redress scheme, the FCA suggested that this could, if implemented, encompass agreements dating back as early as 2007. The FCA acknowledged the Court’s decision that unfairness can arise from undisclosed commissions in particular factual settings, whilst emphasising that legal findings of unfairness are not the only basis for regulatory intervention. A factor that will likely influence the scope of any redress scheme implemented. The FCA confirmed it is continuing to assess whether to implement a formal redress scheme under s404 of the Financial Services and Markets Act 2000. The regulator announced that it will launch a public consultation on the design of the redress scheme in October 2025, with consumer compensation payments expected to start in 2026, subject to consultation outcomes. The proposed scheme may operate on an opt-out basis, automatically including eligible consumers. However, this is still to be determined. The FCA anticipates average redress figures to fall below £1,000 per consumer, though total industry exposure could range from £9 billion to £18 billion, depending on the scope of the scheme and consumer eligibility. Many lenders have begun setting aside provisions in anticipation of potential payouts, with uncertainties as to the levels of redress likely to be paid out and on what timescale the full weight of any such payments will hit. In the meantime, the FCA has extended its pause on time for complaint responses and Financial Ombudsman Service decisions, and it continues to liaise with firms and consumer representatives to ensure that any redress mechanism is efficient, fair and transparent. The regulator in its responses, has reiterated its commitment to delivering outcomes that restore trust in the motor finance sector and protect consumers from undisclosed costs embedded in financial products, noting that it will be “[…] working intensively and engaging widely over the coming weeks on the detail of how a scheme could work”. Conclusion The UK Supreme Court’s decision in Johnson, Wrench and Hopcraft provides much-needed clarification on the legal framework governing commission payments in credit broking, specifically in the car finance sphere. By significantly narrowing the grounds on which fiduciary duties and common law remedies might be claimed, the Court has significantly limited the risk of the most widespread possible litigation against lenders. However, the Court has also reaffirmed the principle that certain commission arrangements, particularly those that are high, discretionary, and poorly disclosed or entirely undisclosed, can give rise to unfair relationships and may justify consumer redress. Although the lenders in Wrench and Hopcraft avoided liability on the facts, the outcome in Johnson shows that the courts remain willing to intervene in cases of genuine unfairness. Moreover, the FCA’s pending decision on whether to launch a redress scheme and to what extent this scheme may stretch, means that firms may still face regulatory consequences even in the absence of legal liability. Moving forward, lenders must ensure that their remuneration structures are transparent, proportionate, and clearly disclosed. This is not only to comply with their legal obligations, but also to meet regulatory expectations on upholding standards of fairness and maintaining the wider public’s trust. Author: Karolina Szymanska, Pupil Barrister

Two years ago, I attended an application to set aside possession in which a Litigant in Person argued that a section 21 notice was defective unless all historic tenancy documentation relied upon was served alongside it. They cited Brown v Sunley Homes Ltd [2017] in support of this position. The proposition was untrue, and the case relied upon in support was a ‘hallucination’ of Google Bard.     I was reminded of this as the Court of Appeal handed down the joined decisions in the “Ayinde” and “Al-Haroun” cases[1]. These were two cases placed before the Court of Appeal not for any substantive cause, but because in both cases it appeared lawyers had used AI and similarly produced fake citations in support of their cases. These cases at first blush appear to be a cautionary tale about the dangers of using AI and judging by the excoriating tone of the bench they very much are. However, the judgment also looks to grapple with two fundamental realities of the changing legal landscape. AI use is increasing exponentially, and the difference is becoming harder to spot. AI is increasingly everywhere and you are now inevitably using it in your everyday life and practice even if you don’t realise it. In Ayinde the barrister, while denying having proactively used AI, admitted it was possible that she had relied on the google summary that now appears at the top of search results which is generated by AI. We are probably all in the same boat as an absence of clear labelling of generated content and it’s increasingly imbedded nature make it more difficult to pick it out. The Court focused on the most dramatic form of AI error, “hallucination”, where an AI model being asked to undertake research, which large language models are not designed for, makes up evidence in support of its generated prose. These problems are likely teething issues of AI, as models get better and more advanced logic style models replace generative designs, the reality is these “hallucinatory” errors will likely fade. However, what is a far more pressing concern is as AI can generate accurate and compelling content, there is an opportunity for misinformation that the Court will find harder to spot. In Ayinde the Court, in support of its conclusion that the citations were fake, set out how it investigated the cases online and discovered no trace of them. However, what if there had been some trace, a blog or article referencing the same case. What if when the query was first raised a case, generated by the same technology, had been produced to support the proposition. We like to think someone would surely have spotted it, but can we be so sure. It is trivially easy to ask an AI language model to write a fictious piece of case law for you. As an experiment I asked one to produce Brown v Sunley Homes to see if my Litigant could, had he instead had a malicious motivation, gone further. The model dutifully produced a document, and with a few further prompts the document morphed into something quite convincing. There were some superficial errors. There was no Arnold LJ on the Court of Appeal in 2017, and the Law Report it was allegedly from did not exist. However, it was remarkably convincing in other aspects, and I must admit I found myself wondering if I would have been fooled had it simply been thrust into my hands by an opponent during a quick hearing with little time to consider. We all like to think that we could spot a fake and that we wouldn’t end up in the position of the unfortunate professionals in Ayinde and Al-Haroun. Of course, you can protect against errors using AI, and the Court was clear that the offending lawyers in these cases had made clear errors of judgment in the way they used AI. The reality though is that simply ignoring AI or thinking that not using it will keep you safe from these issues is equally problematic. Whether it is an opponent taking advantage of the same technology, a malicious actor seeking to dupe the Court or simply a google search with improperly labelled material, any lawyer today needs to be plainly aware of AI and the realities of it. That’s before discussing the obvious commercial benefits, after all could you compete with a firm charging half your fees because they can draft twice as quickly thanks to AI supplementation. The Court of Appeal’s decision is in many ways already out of date. AI use is already prolific and even were some sort of action taken to curtail or ban its use it seems very difficult to see how this could be practically enforced. A working group set up this week to consider how to tackle AI in law has a difficult job ahead of it. However, it is very unlikely that its use will be outright banned, and even if some attempt were made it would be simply unenforceable. Any lawyer practicing today who doesn’t get a grip on the reality of AI risks being left behind, or worse sharing the fate of those in Ayinde and Al-Haroun. [1] R (on the application of Frederick Ayinde v The London Borough of Haringey and between Hamad Al-Haroun v Qatar National Bank QPSC and QNB Capital LLC [2025] EWHC 1383 (Admin)   Author: Sam White, Barrister

In this article, Anna Roffey (Barrister) gives a precis of the Court of Appeal decision in Johnson v Firstrand Bank Ltd, Wrench v Firstrand Bank Ltd and Hopcraft v Close Brothers Ltd.  Introduction The Court of Appeal’s decision in Johnson v Firstrand Bank Ltd t/a Motonovo Finance addressed combined appeals of three cases—Johnson, Wrench, and Hopcraft v Close Brothers Ltd. The appeal clarifies important points in consumer finance, specifically the duties of brokers in disclosing commission payments received from lenders and the circumstances under which lenders may be held liable for insufficient disclosure. This decision provides critical insights into how consumer credit agreements should be handled to protect consumers and ensure transparency. The court evaluated five main issues, with an additional sixth issue unique to Johnson: Does a general statement in the terms and conditions that a commission may or will be paid negate secrecy if the borrower has neither read nor been directed to the statement? For accessory liability in partial disclosure cases, is it necessary for the broker to owe a fiduciary duty to the claimant, or is a “disinterested duty” sufficient? If a fiduciary duty applies in a partial disclosure case, what requirements must be met to establish accessory liability on the lender’s part? Did the broker owe the relevant duty to the claimants in these cases? Is the lender liable for the repayment of the commission Additionally, in Johnson: Was the relationship between Mr Johnson and FirstRand unfair under sections 140A-C of the Consumer Credit Act 1974 ("CCA")? Does a Statement on Commission in Terms and Conditions Negate Secrecy? The first issue considered was whether a general statement in the credit agreement’s terms and conditions, stating that commission “may or will be paid”, negates secrecy if the borrower hasn’t read or been directed to it. The Court concluded that such a clause is insufficient for effective disclosure, as it does not actively inform or ensure borrower awareness of commission arrangements. Effective disclosure, the court explained, requires brokers to direct consumers to commission details so they are aware and understand its potential impact on recommendations [28-31]. Is a Fiduciary Duty Necessary to Establish Accessory Liability? The Court next examined whether establishing accessory liability on the lender’s part requires a fiduciary duty on the broker’s part or if a “disinterested duty” is sufficient. It held that while a fiduciary duty strengthens claims, it isn’t strictly necessary; a “disinterested duty” can suffice as long as the broker has an obligation to act without favouring the lender’s interests exclusively. This interpretation broadens the criteria for establishing accessory liability in partial disclosure cases, recognising the broker’s role in ensuring fair treatment for the borrower [37-40] Requirements for Accessory Liability if a Fiduciary Duty Exists Where a fiduciary duty applies, the Court stated that the lender’s liability as an accessory depends on the broker’s obligation to fully disclose commission information. A lender may be liable if it is aware or should reasonably be aware that the broker failed to provide full disclosure. The Court emphasised that lenders must implement practices to ensure brokers make transparent disclosures, reinforcing the shared responsibility of brokers and lenders to prevent conflicts of interest [45-48]. Did the Broker Owe a Duty to the Claimants? The Court evaluated whether the broker owed a relevant duty to the claimants and found that it did. Acting as intermediaries, brokers have an obligation to secure fair terms for consumers, a duty that is particularly important in cases involving financial incentives. By affirming this duty, the Court highlighted the need for brokers to act transparently and in the consumer’s best interest, reinforcing accountability in brokerage arrangements [50-53]. Is the Lender Liable for Repayment of the Commission? The Court addressed whether the lender is liable for commission repayment if disclosure was insufficient. It concluded that if the lender fails to ensure adequate disclosure and the arrangement disadvantages the consumer, the lender may be liable to repay the commission. This decision connects undisclosed commission payments to the “unfair relationship” provisions of the CCA, allowing consumers to seek compensation where hidden commissions create unfair credit terms [54-56]. Additional Issue in Johnson: Unfairness Under the CCA Finally, in Johnson, the Court considered whether the relationship between Mr Johnson and FirstRand was unfair under sections 140A-C of the CCA. The Court held that the lack of adequate commission disclosure created an imbalance, leading to an unfair relationship. This finding links insufficient disclosure directly to consumer rights under the CCA, reinforcing the need for transparency in credit arrangements to prevent relationships from becoming legally unfair [45-48]. Broader Implications: Fiduciary Duty and Sufficient Disclosure The fiduciary duty owed by brokers in consumer credit agreements demands transparency and impartiality. In the combined appeals, the Court reinforced the principle that brokers cannot assume a generic statement about potential commission payments meets disclosure obligations. In both Johnson and Wrench, the Court emphasised that for disclosure to be “sufficient”, it must be clear and complete, allowing consumers to understand any potential bias in the broker’s recommendations [19-22, 33-36]. Practical Takeaways for Lenders, Brokers, and Consumers For lenders and brokers, these decisions underscore the need to implement clear and accessible disclosure practices. Brokers should provide specific information regarding commission arrangements and ensure consumers understand any potential impact on the broker’s recommendations. Lenders, meanwhile, should support brokers in these practices to mitigate accessory liability risks [50-53]. For consumers, these cases highlight the importance of asking questions about commission arrangements when considering finance agreements. Consumers are encouraged to be proactive in seeking clarity on broker incentives to make well-informed choices [54-56]. Conclusion: A Shift Towards Greater Transparency The combined decisions in Johnson, Wrench, and Hopcraft underscore the Court's commitment to transparency in consumer credit arrangements. By clarifying the requirements for sufficient disclosure and highlighting the shared liability of brokers and lenders, the Court has reinforced the standards of fairness and informed consent in the finance sector. This decision sets a precedent, ensuring that fairness and transparency remain central to consumer protection in credit agreements [58-60].  

INTRODUCTION On 9th October the Renter’s Rights Bill [“the Bill”] had its 2nd reading in the House of Commons.The previous administration’s long-mooted Renters (Reform) Bill fizzled out in the lead up to July’s General Election. However, the new Bill - which is firmly based on its predecessor - is expected to make relatively rapid progress to Royal Assent. The headline change is the end of section 21 evictions. The introduction to the 2nd reading confirmed that removing the threat of “no fault evictions” was at the heart of the proposed legislation. THE BIG CHANGE The Bill wastes no time in getting to work: section 1 provides that there will no longer be fixed term tenancies - all tenancies will be periodic, with a rent period of 28 days (or less) or a month. For the avoidance of doubt, section 2 is titled “Abolition of assured shorthold tenancies” and deletes Chapter 2 Part I of the Housing Act 1988 [“HA ‘88”], including section 21. Section 142 (8) provides for a single day, to be appointed by regulations, on which all existing private Assured Shorthold Tenancies will become Assured Periodic Tenancies. The only exceptions will be tenancies in relation to which possession proceedings based on a valid section 21 Notice had already commenced prior to enactment of the Bill, [Sch 6, para 3]. Some observers have suggested that this could result in a surge of pre-emptive section 21 Notices, as landlords attempt to avoid the automatic conversion to a periodic tenancy. GROUNDS FOR POSSESSION Grounds for possession under the Bill are dealt with at sections 4 – 6, and the changes are set out in Schedule 1, which amends Schedule 2 of the HA ‘88. Section 6 states that regulations may provide for a new form of section 8 notice. As well as abolishing section 21, there are substantive changes to Ground 8. To rely on this ground, there will have to be arrears of either 13 weeks (for weekly rent) or 3 months (for monthly rent). OTHER CHANGES TO GROUNDS INCLUDE: In addition to Ground 1 (occupation by the landlord or landlord’s family) a new Ground 1A applies where a landlord seeks possession in order to sell the property; To rely upon Ground 2 – sale by mortgagee – the mortgage will no longer need to pre-date the tenancy; A new (mandatory) Ground 6A applies where a property is subject, for example, to a banning or improvement order. In other words, a tenant could face a mandatory possession order because their landlord is at fault. Ground 16 (possession of property relating to employment) becomes Ground 5C, thereby becoming a mandatory ground pursuant to section 7(3) HA 1988. OVERVIEW OF NEW PROVISIONS Rent increases may only happen once a year and must follow the procedure in section 13 HA ‘88 (sections 7 – 8). A new section 13B is introduced, giving the First Tier Property Tribunal jurisdiction to determine the validity of a section 13 Notice. Further, where a tenant challenges a rent increase, the Tribunal may only set the rent either at the amount stipulated in the section 13 Notice or at the open market rate, if lower. The Tribunal cannot set the rent at a higher level. Section 9 inserts a new section 14ZC into HA ’88, entitling a tenant to repayment of any rent paid in advance which relates to days falling after the end of the tenancy. Section 10 inserts into HA ’88 new sections 16A to 16C on the right to request permission to keep a pet. Section 16A implies a term into every assured tenancy that a tenant may keep a pet if the landlord consents, and that consent should not be unreasonably refused. Section 16C implies a term that tenants will have insurance covering pet damage or agree to indemnify the landlord for having such insurance. Tenancies of more than 7 years cannot be assured tenancies, section 30. Therefore, possession for rent arrears of a shared ownership property could become subject to forfeiture rather than HA ‘88 possession proceedings. Sections 32-34 contain prohibitions on discriminating against prospective tenants on the basis that they have children or are on benefits; with breaches subject to financial penalties (section 39). However, section 40 makes clear that there is no prohibition on taking into account whether a tenancy is affordable for a prospective tenant. Rental bidding wars are prohibited pursuant to sections 55 – 56. Landlords must not encourage or allow prospective tenants to attempt to outbid each other: the rent payable must be as advertised. Penalties of up to £7000 may be imposed for a breach. The requirement to remedy hazards within a specific period pursuant to section 10A of the Landlord and Tenant Act 1985 is extended to private tenancies by section 59. A new Landlord Redress Scheme for the independent investigation and determination of tenants’ complaints is introduced by sections 62 – 72. Sections 73 – 94 provide for a new database of landlords and rental properties. Many of the specifics of both the Redress Scheme and the Database are to be detailed in regulations. Rent Repayment Orders [“RPO”] will apply to a wider range of offences, pursuant to section 96. In addition, tenants will have two years, rather than 12 months, to make an application for an RPO. PRACTICAL CONSIDERATIONS In addition to raising the rent arrears threshold for Ground 8, a new notice period applies pursuant to section 4. A 4-week notice period will apply to proceedings based on Grounds 8, 10 or 11. If different grounds with different notice periods are relied upon, the longest notice period will apply. A further significant change arises pursuant to paragraph 23 (d) of Schedule 1, which inserts the following words into Ground 8: When calculating how much rent is unpaid for the purpose of this ground, if the tenant is entitled to receive an amount for housing as part of an award of universal credit under Part 1 of the Welfare Reform Act 2012, any amount that was unpaid only because the tenant had not yet received the payment of that award is to be ignored.     A court cannot make a possession order on Ground 8 – or any Grounds other than 7A and 14 – unless there has been compliance with the tenancy deposit provisions (section 25(5)). However, there is no similar restriction in relation to provision of the gas safety certificate, EPC and How to Rent Guide. Grounds 1 and 1A cannot be relied upon during the first 12 months of a tenancy and a 4-month notice period applies before proceedings may be started. In addition, reliance on either of these Grounds prevents a landlord from re-marketing or re-letting a property for a period ending 12 months after either expiry of the notice or from the date of the Particulars of Claim, if possession proceedings are issued. Breach of the restrictive period may be punished by a fine of up to £7000 WHAT HAPPENS NEXT On 22 October the Bill entered the Committee Stage, which is scheduled to continue until 28 November. Changes to the Bill are likely, and many of the new provisions require regulations before they take effect. There is broad cross-party support for an overhaul of the current laws on residential tenancies, and the Bill puts the interests of tenants at the forefront of the debate. However, the fact remains that a large proportion of the UK population relies on private landlords for housing – the homelessness charity Shelter recently estimated that there were 11 million private renters in England alone. Therefore, it would make little sense to create an environment that was prohibitively harsh towards private landlords. Whether the Bill is the fresh start that renters desperately need or an attack on the entire property market, it is clear that big changes lie ahead. Author: Charlotte Walker, Barrister

In this article, Mark Erridge (Pupil Barrister) sets out the law as it currently stands relating to undisclosed commissions in motor finance claims,ahead of the Court of Appeal handing down judgment in the consolidated appeals of Hopcraft v Close Brothers Ltd, Wrench v Firstrand Bank Limited (London Branch), and Johnson v Firstrand Bank Limited (London Branch) T/A Motonovo Finance (“the Hopcraft Appeals”). Introduction It is common industry practice, when a customer purchases a vehicle from a motor dealer on finance, where that finance is facilitated by the dealer acting as broker, for the finance provider to pay a commission to the dealer. Commonly, there is either no or limited disclosure to the customer of the existence or amount of the commission by the dealer or finance provider. There has in recent years been a significant increase in litigation by customers (with the assistance of litigation funders) seeking to challenge the legitimacy of such an arrangement, on the basis that it falls foul of either common law or equitable principles relating to civil law bribes, or of the statutory regime under the Consumer Credit Act 1974 (‘CCA 1974’) relating to unfair relationships. So far, decisions in the motor finance context have been at County Court level only, and have broadly gone both ways. However, the Court of Appeal has recently heard oral arguments in the Hopcraft Appeals, with the Court invited to consider the nature and scope of the duty owed to the customer where such a commission is paid by a finance provider to a motor dealer. When handed down, this judgment will have significant ramifications in the area of motor finance. What follows is an explanation of the law as it currently stands (in early August 2024). Fully- & Half-Secret Commissions As it is currently understood, the common law on civil bribes distinguishes between two types of ‘undisclosed commissions’, depending upon the level of disclosure relating to the commission, that is between ‘fully-secret’ and ‘half-secret’ commissions. The type of undisclosed commission dictates what remedy is available to the customer. Fully-secret Commissions may be found where a commission is given by a lender to a broker, the fact of which is kept fully secret from the borrower. It is regarded as a civil law bribe. As a form of fraud, if proven, the remedies can be extensive, such as rescission of any ensuing contract at the borrower’s election. However, where the fact of the commission is not kept fully secret from the borrower, that is, where the borrower is aware, or ought reasonably to have been aware, that the broker may be paid a commission by the lender, then the situation may fall into the ‘half-way house’ considered in the case of Hurstanger Ltd v Wilson [2007] EWCA Civ 299 (“Hurstanger”); the ‘half-secret’ commission. This commonly occurs where the terms of any agreement or documentation provided by the lender or broker suggests that a commission may or will be payable, but the amount is never specified. The remedies available in the case of half-secret commissions are somewhat more limited. Structure of the Law There is no authoritative guidance as to the approach to be applied to determine the nature of the commission and availability of the remedies. The following is the author’s suggested structure of the law as it currently stands, which will be adopted in this document: Does the relationship between the broker and borrower engage the law relating to secret or half-secret commissions at all? Has the commission been kept fully secret or half-secret from the borrower? If fully secret: Was the payee under a duty to provide disinterested advice? Has the borrower satisfied the three-stage test in Industries & General Mortgage? What remedies are available to the borrower? If half-secret: Did the broker owe the borrower a fiduciary duty, and has this duty been breached? What remedies are available to the borrower? It is also common for such claims to include a cause of action alleging an unfair relationship between the borrower and lender pursuant to s.140A CCA 1974, which will be discussed below. Initial Questions (i)  Does the relationship between the borrower and broker engage the law at all? It is arguably a pre-condition to establishing a secret or half-secret commission that there exists between the broker and borrower a relationship akin to, but broader than, an agency relationship. The key authority dealing with secret commissions is that of the Court of Appeal in Wood v Commercial First Business Ltd [2022] Ch 123 (“Wood”), which considered two related appeals in respect of commercial loans taken out from Commercial First by borrowers, who, despite paying a broker a fee to advise on and facilitate the loans, were not made aware that the broker was receiving a commission on each loan. It is notable that this is a fully secret case. This case is authority for the proposition that it is not necessary for an ‘agency’ relationship to exist between the broker and borrower in a fully secret case, that instead one must simply demonstrate that the person who is offered or paid a secret commission is “someone with a role in the decision-making process in relation to the transaction in question e.g. as agent, or otherwise someone who is in a position to influence or affect the decision taken by the principal” (Richards LJ at [51], citing Clark J in the case of Novoship (UK) Ltd v Mikhaylyuk [2012] EWHC 3586 (Comm) at [108]). Although Wood strictly applies only to fully secret cases, given that (as will be discussed later) in half-secret cases it is at present necessary to demonstrate the more onerous requirement that a fiduciary relationship exists between the broker and borrower, such a half-secret claim will clearly also fall at the first hurdle if the Court is not even satisfied that the broker is, in connection with the borrower, “someone with a role in the decision-making process in relation to the transaction.” In two appeal cases at county court level (both now the subject of appeal as part of the Hopcraft Appeals), HHJ Worster considered the approach to be adopted in respect of secret and half-secret commissions pursuant to motor finance agreements: Mark Hurst v BMW Financial Services (GB) Limited (Birmingham CC, Jan 2024, unrep.) (“Hurst v BMW”) and Andrew Wrench v FirstRand Bank Limited (Birmingham CC, Jan 2024, unrep.) (“Wrench v FirstRand”). In both cases, the claimant was a borrower who purchased a vehicle from a car dealer who also facilitated as broker a motor finance agreement with the defendant lender.  A commission was paid to the broker by the lender, which was not kept entirely secret from the borrower, but was not fully disclosed. In Hurst v BMW, HHJ Worster endorsed at [16] the approach of the trial judge who had: “…correctly identified that the first issue was whether Mr Hurst’s relationship with Lookers engaged the law relating to bribes and secret commissions.” The trial judge had applied the Novoship test, concluding that the broker was someone with a role in the decision making process in relation to the transaction in question, on the basis that the broker could decide which of its available lenders it made known to the customer, or to only provide information about BMW’s products, which had a restrictive effect on Mr Hurst’s decision and so meant that the broker was someone in a position to influence or affect the decision. HHJ Worster overturned the trial judge. His conclusion at [17] is worth citing in full: “The conclusion that the broker was someone who was in a position to influence or affect the decision is difficult to sustain. This broker had no role in the decision making process in the sense that it could take the decision or affect the principal’s legal relations with BMW. The test referred to in Wood at [51] is formulated in the context of the duties of such a person. Novoship is authority for the proposition that the duty under consideration is not to be restricted to agents properly so called, but covers a broader group. But to qualify for membership of that broader group, the person must be involved in the decision making process in some way. On these facts I cannot see that this broker would qualify for membership. The broker’s role here is to put forward potential finance options, not to take part in the decision making process or influence of affect that decision. It acts as a broker. The options it puts forward may affect what the purchaser decides to do in terms of finance, but that is something different to an involvement in the decision making process, or a role which allows it to affect or influence the decision. The broader group does not include a person who simply acts as an advisor or provides information.” [emphasis added] The question is fact-specific and therefore sensitive to the evidence of the broker’s role, and the outcome of cross-examination of the borrower. (ii)  Is the commission fully Secret or half-Secret? A three-stage test to determine whether a payment amounts to a “secret commission” was set out by Slade J in Industries & General Mortgage Co Ltd v Lewis [1949] 2 All ER 573 (“Industries & General Mortgage”), the third stage of which is of direct relevance to the question of whether the commission is considered fully secret or ‘half-secret’: (1) the person making the payment makes it to the agent of the other person with whom he is dealing, (2) he makes it to that person knowing that that person is acting as the agent of the other person with whom he is dealing, and (3) he fails to disclose to the other person with whom he is dealing that he has made that payment to the person whom he knows to be the other person's agent. The touchstone of a secret commission is, naturally, secrecy. As noted by Chitty LJ in Shipway v Broadwood [1899] 1 QB 369 (“Shipway”) at 373: “the real evil is not the payment of money, but the secrecy attending it.” However, secrecy may be difficult to establish where there has been some disclosure relating to the commission to the borrower by the broker or lender, for example where the finance agreement terms refer to the broker being paid a commission, but not specifying the amount. In Hurstanger the Court of Appeal recognised the situation where there was sufficient disclosure to negate secrecy but the borrower’s informed consent had not been obtained. Tuckey LJ at [37] considered there to be “no logical objection” to such a “half way house”.  The broker’s terms in Hurstanger confirmed that “In certain circumstances [the lender] company does pay commission to brokers/ agents.” Tuckey LJ asked two questions of this disclosure. Firstly, did the disclosure negate secrecy? Yes – at [41]: “If you tell someone that something may happen, and it does, I do not think that the person you told can claim that what happened was a secret. The secret was out when he was told that it might happen.” Secondly, was the borrower’s informed consent obtained? No – at [42]: “[The broker’s terms] could and should have been clearer and informed the defendants that a commission was to be paid and its amount and done so in terms which made it clear that the defendants were being asked to consent to this. I also think this statement should have been accompanied by the warning recommended by the OFT to the effect that its payment to the broker might mean that he had not been in a position to give unbiased advice.” The example is given in Wood (itself a fully secret case) by Richards LJ at [127] that the commission would be half-secret if the borrowers “…knew, or they would have known if they had read the terms of business, that the broker might be paid fees by lenders”. By contrast in Wood the broker’s terms of business imposed an unqualified obligation on the broker to inform the borrower, before a mortgage was taken out, of the amount of the fee. Per Richards LJ at [134]: “Without such disclosure, the borrowers were not on notice that any commission might be paid. On the contrary, the only conclusion from the absence of any notification as required was that no commission was to be paid. The undisclosed commissions were therefore secret, not half-secret, commissions.” Borrowers may seek to run an argument that a term in the agreement providing for payment of a commission was not fully incorporated into said agreement, or lacked sufficient clarity to be understood, or was not specifically drawn to their attention. HHJ Worster in Wrench expressly disavowed such considerations: the question is whether secrecy is negated, not whether the term was incorporated; that is a question of fact (at [22]). He considered it inappropriate for the Court to carry out an exercise in semantics (at [25-26]). Fully Secret Commissions (iii)  Was the payee under a duty to provide disinterested advice? Once the Court is satisfied that the broker in principle falls within the class of persons to whom the law on secret commissions applies, and that the secrecy has not been negated, Wood confirms that the Court must next consider whether the broker owed a duty to the borrower to provide disinterested information (Richards LJ at [48]). It had been argued in Wood that in order for a broker to be liable for a fully secret commission, there must exist between the broker and borrower a ‘fiduciary relationship’, i.e. a relationship of close proximity and trust as recognised by the law in a number of contexts, such as between director and company, or trustee and beneficiary. The Court of Appeal on that occasion reviewed the authorities and held that it was not necessary to establish a fiduciary relationship. However this question is once again up for consideration by way of the Hopcraft Appeals. HHJ Worster considered the application of this test in Wrench in the context of motor finance brokers, concluding that it was difficult to maintain on the facts that the broker owed a duty to provide disinterested information to the Claimant. At [35] he noted: “In the same paragraph the Judge concludes that the brokers had a duty to provide information on an impartial or disinterested basis. That was an application of the test formulated in Wood at [48]. The problem with that finding, is that the brokers were self evidently not impartial or disinterested. They were selling the cars, and in the course of undertaking that sale they were providing Mr Wrench with information about finance.” It is therefore strongly arguable that where a broker provides a dual role to a borrower, both as seller of a vehicle and as broker of a motor finance agreement, these roles are not separable in the context of the duties owed by the broker. It would be unusual to expect a broker with demonstrable self-interest in selling the vehicle to act impartially when suggesting finance in respect of the same vehicle. This situation may be distinguished from the commercial lending in Wood where the broker merely facilitated the loan, and did not, say, act as vendor of the land in respect of which the commercial loans were secured. In the latter hypothetical case, such a party would have a vested interest in ensuring successful completion of the sale, which cannot realistically be ignored when providing information relating to the loan which facilitates the sale. (iv)  Has the borrower satisfied the three-stage test in Industries & General Mortgage? The Court of Appeal in Wood broadly endorsed the three-stage test for a secret commission outlined by Slade J in Industries & General Mortgage, save for a determination that it is unnecessary for the recipient of the commission to be an agent of the borrower. Therefore, the test can be stated as: (1)  the person making the payment makes it to someone with a role in the decision-making process of the other person with whom he is dealing; (2) he makes it to that person knowing that that person has such a role; and (3) he fails to disclose to the other person with whom he is dealing that he has made that payment. Notably, where this test is made out, there are no ancillary requirements: dishonesty and corrupt motives are irrefutably presumed (Novoship); there is no need to establish that the secret commission had any influence on its recipient (Shipway); and it matters not whether the payments were made to the broker or a third party close to him (Novoship). (v)  What remedies are available to the borrower in a fully secret case? In a fully secret case, the borrower has a range of equitable and legal remedies available, as noted by Tuckey LJ in Hurstanger at [37]. The borrower may: (i) Rescind the contract ab initio providing that counter-restitution can be made, or terminate for the future where counter-restitution is not possible; (ii) Claim for money had and received to recover the value of the bribe, as it is regarded as an overpayment for the product; and (iii) Claim for damages for the actual loss which has been sustained as a result of a transaction which has been entered into as a result of a bribe. In respect of a claim for rescission, provided the Court is satisfied that a fully secret commission has been taken, applying the tests outlined above, in principle the motor finance agreement will be voidable at the borrower’s election. The Court has no discretion to refuse to grant such rescission. The question for the Court is whether counter-restitution (‘restitutio in integrum’) is possible. While an ability to make restitution is essential to an action for rescission, the Courts require that this should be substantial rather than precise. Therefore, if property has retained its substantial identity, rescission is possible even though the property has deteriorated or depreciated or cannot be restored in its original state. For example, in Salt v Stratstone Specialist Ltd [2015] EWCA Civ 745, the buyer of a car sought rescission for misrepresentation by the seller. It was held that the buyer could rescind despite substantial depreciation of the vehicle’s value and the enjoyment of the vehicle by the buyer. Longmore LJ said as follows, at [30]: “Rescission is prima facie available if “practical justice” can be done. If “practical justice” requires a representor to be compensated for depreciation, it is for the representor so to assert and prove; likewise if the representor asserts that use of the car is to be taken into account… The absence of evidence about depreciation or the value of the use of the car should not operate to the disadvantage of the representee who should never have been put in the position of having a troublesome old car rather than a brand new one.” For a practical, if brief, demonstration of the order for counter-restitution in relation to a vehicle which has depreciated, in Scuderia Prestige Automobile Limited v Mr Imran Malik [2021] EWHC 2744 (Ch), Chief Master Shuman said at [57]: “I am satisfied that the claimant is entitled to rescission of the agreement and that the defendant should have returned the McLaren and £35,000 [being a balancing payment on part-exchange] on or about 23 April 2020. The McLaren has now depreciated in value and the claimant is entitled to an enquiry as to the diminution in value and an award of damages in that amount. It is no bar to that claim that the defendant is said to have carried out works to the McLaren.” [emphasis added]” Therefore, when conducting the restitutionary exercise required by rescission, the Court is to take account of the depreciation of the vehicle’s value and the enjoyment of the vehicle by the buyer, however the burden would appear to be on the lender to adduce evidence of the depreciation or value of the use of the car. Half-Secret Commissions (vi)  Did the broker owe the borrower a fiduciary duty, and has this duty been breached? Within the Hopcraft Appeals, the 3 Court of Appeal Judges hearing the appeals have been invited by the Appellants to consider whether Wood has effect beyond fully secret cases, to determine whether the Wood duty to provide disinterested advice is a sufficient connection between the customer and broker in a half-secret case, rather than the more onerous requirement of demonstrating that the broker owed fiduciary duties to the customer. However, until the outcome of the Hopcraft Appeals, it is understood that Wood applies only to fully secret cases, and that in half-secret cases it is necessary for the customer to establish a breach of fiduciary duty on the part of the broker. The explanation for this disparity is given by Richards LJ in Wood at [21]: “…in the case of a so-called half-secret payment, the decision of this court in Hurstanger Ltd v Wilson [2007] 1 WLR 2351 required there to be a fiduciary relationship. The basis for this difference is that half-disclosure means that the payment is not, in law, a bribe, but equitable remedies are available if the disclosure is insufficient to satisfy the need for informed consent where there is a fiduciary relationship.” In the context of a broker–borrower relationship, it is a fact-specific exercise whether fiduciary duties are owed, since not all broker–principal relationships are fiduciary. The touchstone of a fiduciary relationship is loyalty. An authoritative statement as to who is a fiduciary was provided by Millett LJ in Bristol and West Building Society v Mothew [1998] Ch 1 (“Mothew”) at p18: “A fiduciary is someone who has undertaken to act for or on behalf of another in a particular matter in circumstances which give rise to a relationship of trust and confidence. The distinguishing obligation of a fiduciary is the obligation of loyalty. The principal is entitled to the single-minded loyalty of his fiduciary. […] he is not subject to fiduciary obligations because he is a fiduciary; it is because he is subject to them that he is a fiduciary.” In short, the existence of a fiduciary obligation depends upon whether the relationship between the broker and borrower was one of trust and confidence. It is crucial to consider first the nature of the duties expressly and impliedly owed by a broker to a borrower, posing the question whether the broker can properly be said to owe an unwavering obligation of loyalty. It may well be difficult to establish that such obligations are owed in the context of a broker who also acts as seller of the vehicle. It is difficult to contend that such a broker falls under an explicit or implied duty not to make a profit out of his trust, where profit is the entire motivating factor for the provision of the brokerage services, i.e. to facilitate the sale. This argument has been accepted on appeal at county court level in Johnson v FirstRand Bank Limited (Cardiff CC, 6 July 2023, unrep.) (“Johnson”), a case involving facts nearly identical to Wrench and Hurst. In Johnson, HHJ Jarman KC rejected the borrower’s argument that the broker owed him a fiduciary duty, noting at [19]: “[Counsel for the borrower] accepted that the dealer was wearing two hats, one when it was selling the car and the other when it was dealing with finance. In my judgment this is the essential distinction with the broker cases, where brokers do not themselves offer what their client wants, but offer the service of obtaining it, namely finance. It is difficult to see how in practice or in principle a car dealer could offer single minded loyalty to a customer when dealing with the finance, but not when selling a car to the same customer which gives rise to the need for finance. Finance is incidental to the purchase of the car for those who need to borrow.” [emphasis added] (vii)  What remedies are available to the borrower in a half-secret case? Unlike in fully secret commission cases, if the Court is satisfied that the commission was half-secret and that the broker owed and breached a fiduciary duty to the borrower, rescission is not available as of right: the Court retains a discretion as to whether or not to grant rescission. In general, the Courts have generally expressed some degree of reluctance to grant rescission in such cases, accepting the Defendant’s arguments that rescission would be unfair and disproportionate. Indeed, the Court of Appeal in both Hurstanger and McWilliam refused to order rescission of the loan agreements in those cases. In Hurstanger, Tuckey LJ considered at [51] that “To rescind the transaction altogether would be unfair and disproportionate.” Unfair Relationship An alternative cause of action lies in the assertion that there exists between the borrower and lender an unfair relationship existing for the purposes of s.140A CCA 1974, which provides that: The court may make an order under section 140B in connection with a credit agreement if it determines that the relationship between the creditor and the debtor arising out of the agreement (or the agreement taken with any related agreement) is unfair to the debtor because of one or more of the following: any of the terms of the agreement or of any related agreement; the way in which the creditor has exercised or enforced any of his rights under the agreement or any related agreement; any other thing done (or not done) by, or on behalf of, the creditor (either before or after the making of the agreement or any related agreement). In practice, claims are usually brought upon s.140A(1)(c) CCA 1974, namely on the basis of unfairness arising due to “any other thing done (or not done) by or on behalf of the creditor”. If the Court is satisfied that the relationship is unfair, then the Court has far-reaching powers under s.140B CCA 1974 to order the return of any monies paid under the agreement, amongst other remedies. Connection between s.140A CCA 1974 and secret commissions at common law A half-secret commission was held to be unfair for the purpose of s.140A by the Court of Appeal in Nelmes v NRAM [2016] EWCA Civ 491 (“Nelmes”), which involved a claim based in part upon non-disclosure of a commission paid by the lender to the broker in the context of secured lending over properties. Curiously, this claim was pleaded solely upon the s.140A statutory ground, with the Court noting in passing that the Claimant could have sought relief in common law or at equity in line with Hurstanger. In Nelmes, the root of the unfairness as found was the fact that the payment deprived the borrower of the disinterested advice of his broker, a common pleading in motor finance claims based upon secret commissions. However, this therefore requires the Court to consider whether there has been a breach of a duty to give disinterested advice, and an application of the approach in Wood, in essence ‘piggy-backing’ upon the civil law bribe as a cause of action. However, the Courts have held that where the unfairness relied upon is ‘piggybacking’ upon a separate common law cause of action, all the constituent elements of that separate action are required to be made out. For example, in Carney v NM Rothschild and Sons Ltd [2018] EWHC 958 (Comm), a claim involving the mis-selling of PPI, HHJ Waksman KC said this at [50]: “It seems to me that generally speaking, and subject to the burden of proof which is of course on the creditor here, the same elements as are required by the cause of action should be shown when such matters are raised as constituting an unfair relationship. Otherwise, there is a danger that the analysis of their significance or otherwise becomes blurred and uncertain.” This approach was followed by HHJ Worster in Hurst (at [41]). Therefore, where a Claimant brings a claim pleaded exclusively under s.140A CCA 1974 without reference to the common law relating to secret commissions, the Court should nonetheless apply the common law tests as set out above in order to determine whether the relationship is unfair. Further, where a claim is pleaded in the alternative upon both the statutory and common law causes of action, where the Court finds the common law cause of action is not made out, it is suggested that the statutory cause of action will rarely succeed. Consideration of the Entirety of the Agreement Section 140A(2) CCA 1974 requires the Court to have regard to all matters it thinks relevant in order to determine whether a relationship is unfair. As confirmed by the Supreme Court in Smith v Royal Bank of Scotland plc [2023] UKSC 34, this requires the court to consider the whole of the relationship between the parties; the assessment is a broad and holistic one. In this regard, the borrower’s own attitude to the commission payment is crucially important. Where it is established in evidence that fact of the commission would have made no difference to the borrower’s decision to proceed with the finance agreement, i.e. that the borrower would have continued with the finance even had the existence and amount of the commission been fully revealed, this is an important factor which militates against a finding of unfairness. Indeed, in Hurst, HHJ Carter found on appeal that the trial judge had failed to properly undertake the exercise required by s.140A(2) CCA 1974. The trial judge had based his finding of an unfair relationship solely upon two grounds, namely a breach of duty arising from the payment of the commission and the failure to refer to other lenders. However, it had been established in evidence (as a result of the trial Judge’s own questioning, no less), that the payment of the commission would have made no difference to the borrower’s decision to proceed with the finance. HHJ Carter considered that in failing to take account of this admission by the borrower, the Judge had erred in finding an unfair relationship. Conclusion The matters on appeal within the Hopcraft Appeals go to the heart of the nature and structure of the law on secret commissions in motor finance claims. The Court of Appeal is invited to reconsider the scope of the Wood duty, and provide guidance as to whether motor dealers can be said to owe either a fiduciary duty or the Wood duty to their customers in a situation where they have a vested interest in the sale of the vehicle. Although it is likely that the Court will provide some useful guidance on this question, in the author’s view, the outcome of the Hopcraft Appeals is unlikely to be wholly determinative in favour of either side, with cases likely to turn upon their individual facts. As regards the law as it currently stands, where the Claimant does succeed at trial, it is notable that this is usually on the basis of a Hurstanger half-secret commission or unfair relationship, with the remedy usually limited to the amount of the commission plus interest. Claims must nevertheless be defended vigorously, due to the risk of the Court ordering rescission of the agreement. Author: Mark Erridge, Pupil Barrister